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Tuesday, 28 June 2011 03:32

Philippine REIT law allows property developers to raise funds by selling assets with regular income streams by transferring those assets to SPVs that can then be listed, to give investors the option to invest directly in completed buildings as opposed to just the developer.



The Philippines The Real Estate Investment Trust Act of 2009, also known as the Republic Act 9856, was enacted in December 2009, providing the legal base for Philippine REITs (P-REITs). The REIT Act became effective in February, 2010. In April 2010, the Securities and Exchange Commission of the Philippines (PSEC) released a draft of the Implementing Rules and Regulations in relation to the REIT Act 2009. The legal structure of P-REITs follows that of J-REITs, where they will be formed as corporations with shares of stocks instead of unit trusts. P-REITs are required to have a minimum paid-up capital of ₱3 million (US$72,000) and at least 1,000 public shareholders. The Act further advises that at least 75% of a P-REIT’s assets must be in income-generating property. With respect to leveraging, borrowings shall not exceed 75% of the market value of each P-REIT. Furthermore, 90% of distributable income must be allocated to shareholders. In addition to the general requirements, which are in line with international standards, the Philippine’s regulators has imposed a number of highly stringent rules in terms of ownership and taxation. In particular, the public ownership of P-REITs is required to be at least 40% during the first two years from listing and 67% by the third year. The Bureau of Internal Revenue (BIR) further insists that P-REITs could only receive pass-through status if they maintain public ownership of at least 67% and distribute at least 90% of their distributable income. Additionally to the minimum ownership, the BIR also requires a 12% value-added tax on the initial transfer of property assets in P-REITs. These strict rules have been publicly criticised by property market participants. A number of major property developers in the country, including SM Prime, Ayala Land and Megaworld, have postponed their plans for P-REIT initial offerings. Consequently, the Philippines was placed second last, above only Thailand, in Asia in terms of overall potential, REIT opportunity and regulatory support, despite having high property market growth potential (Trust 2011).

Source: Prof. Alex Anh Khoi Pham - University of Western Sydney: The Development of REIT Markets in Asia (1/1/2014) - Link.

Last Updated on Sunday, 23 February 2014 14:56